Principles and Practices for Regulating and Supervising Microfinance

This paper analyzes the microfinance regulatory framework of four countries: Bolivia, Colombia, Paraguay, and Peru. It discusses the following topics as they relate to microfinance institution (MFI) and credit union (CU) regulation:

• Legal form and purpose;
• Ownership;
• Control by owners;
• Minimum capital;
• Capital adequacy;
• Credit concentration;
• Permitted operations;
• Distribution of dividends.

It also provides recommendations on the practices for supervising MFIs and CUs. These cover:

• Organization of the supervisory agency;
• Role of microfinance and CU specialists;
• Licensing of MFIs and CUs;
• Off-site supervision;
• On-site supervision;
• Sanctions;
• Accounting standards.

The paper concludes that:

• The search for resources has led many nonprofit MFIs to consider transformation from nonprofit foundations to regulated and supervised (for-profit) financial entities.
• Bank supervisors can maintain the integrity of the regulatory framework and accommodate microfinance at the same time.